What does Trump’s presidency mean for student loan borrowers?

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Many student loan borrowers are wondering how Donald Trump’s plans for dealing with the student loan crisis will affect them going forward. In addition, borrowers are also wondering how his choice for Secretary of Education, Betsy DeVos, will want to handle federal student loans in the future. While being an outspoken advocate in many areas of education, she has yet to address the particular issue of student loans.

Both of these are important questions that may finally be getting early answers. Sadly, those answers are scary for a huge number of student loan borrowers. Reports as of May 2017 are that Trump and DeVos’ initial education budget will seek to eliminate the Public Service Loan Forgiveness program which could cost student loan borrowers billions of dollars. Trump and DeVos will likely seek to eliminate over $700 million in Perkins Loans and massively reduce the amount of work-study programs.

On November 16th, 2017, the House of Representatives passed the Tax Cuts & Jobs Act. Within the 429 page document, there are changes made to existing laws that would significantly affect current students, those with student loans, as well as parents who have dependents on their taxes currently in school. Please note that this has not yet passed the senate so it’s yet to be seen whether it will actually become law or not.

Interest Deduction
One big change presented in the Tax Cuts & Jobs Act is that interest deductions for student loans are being wiped out starting in 2018. Currently, if you are earning under $65,000/yr as a single, or $130,000/yr if you are married and filing jointly, you are eligible for an interest deduction on your student loans of up to $2,500. IRS records show that in 2015 there were 13.4m people who claimed that deduction and the average deduction was $1,100. For someone in the 25% tax bracket, that would translate to a reduced tax liability of $275. It’s not a huge amount, but for a struggling individual out of college trying to make ends meet, every dollar matters.

*This was removed from the final version of the law that was passed.

Graduate Tuition Waivers Will Be Taxed
Graduate students often take up jobs at their university in exchange for a tuition waiver. These grads are often working on research, teaching in a classroom, and trying to earn their graduate degree at the same time. The school will waive a portion of their tuition, most often into the many thousands of dollars for their work. Currently, the IRS does not see that tuition waiver as taxable income. Beginning in 2018, it would. For a graduate who earns a $25,000 tuition waiver and is in the 12% tax bracket, this would result in a tax bill of $3,000 dollars, when they may not even have an actual income. These are students working full time to earn that waiver but may not have any actual REAL income.

*This was removed from the final version of the law that was passed.

American Opportunity Tax Credit Improved
The American Opportunity Tax Credit has been improved by the Tax Cuts & Job Act. This is one of the more popular deductions for student loans that allows up to a $2,500 deduction for qualified education expenses for the first 4 years of higher education. The IRS data show that 9m Americans applied for this tax credit last year. The Tax Cuts & Jobs Act has increased the allowable deduction period to five years instead of four, but the fifth year is at a reduced $1,250 deduction. The deduction is calculated as being 100% of the expenses incurred up to the first $2,000, and after that it’s 25% of the next $2,000 for a max of $2,500.

Lifetime Learning Credit Being Axed
The Lifetime Learning Credit is being repealed, which allows a credit offset of 20% on the first $10,000 of your education expenses. This translates into a deduction of up to $2,000, which could be used for many years as you had education expenses. The big difference between the American Opportunity Tax Credit & the Lifetime Learning Credit is that the latter allows for deductions based on vocational expenses. By removing this tax credit it is hurting those who are looking to improve their skill and gain useful hands-on training in a field that may not be available at a traditional university

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